Kenya Revenue Authority v Web Fontaine Group FZ-Lic, Trade Mark East Africa & Bull Sas [2017] KEHC 1269 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA

AT NAIROBI

CIVIL APPEAL  NO. 356  OF 2015

KENYA REVENUE AUTHORITY.................................................APPELLANT

- V E R S U S -

WEB FONTAINE GROUP FZ-LIC............................................RESPONDENT

AND

TRADE MARK EAST AFRICA ........................ 1ST INTERESTED PARTY

BULL SAS ................................................... 2ND INTERESTED PARTY

(Being an appeal from the part  of the part of the decision of the

Procurement Administrative Review Board issued at Nairobi

on 14th July 2015 in Application no. 27 of 15th June 2015)

JUDGEMENT

1) This judgement is the outcome of the partial appeal against the decision of the Public Procurement Administrative Review Board (PARB) delivered on 14. 7.2015 vide Application no. 27 of 2015 between Webb Foundation Group F2-LLLC and Kenya Revenue Authority (K.R.A).  The disputed tender process was carried out when the Public Procurement and Disposal Act, 2005 was still in force.  The tender was in respect of the supply, installation and commissioning of an integrated customs management system (ICMS) and related modernization services at the Kenya Revenue Authority which was Trademark East Africa (T.M.E.A) (2nd respondent) awarded to M/s Bull Sas Ltd (the interested party herein).  The appeal challenges the Board’s specific findings as follows:

First, that the appellant was the procuring entity in tender no. PO/20130221

Secondly, the Trademark East Africa, the 1st interested party was the appellant’s agent for purposes of the procurement proceedings.

2) When the appeal came up for hearing learned  counsels appearing in this appeal recorded a consent order to have the same disposed of by written submission.  I have re-evaluated the case that was before the Board,   I have further considered the rival written submissions.  The first issue to be considered is whether the procurement conducted pursuant to the terms of a negotiated grant is subject to the provisions of the Public Procurement and Disposal Act of 2005.

3) Before determining this issue it is important to set out the background of this matter.  On 24th November 2010, the Government of Kenya (G.O.K) through the Ministry of East African Community and Finance entered into a Memorandum of Understanding with Trademark East Africa, the 2nd respondent herein aimed at offering financial, technical, capacity building and logistical support to the East African Community partner states individually in the integration process.  It is said Trademark East Africa was a special purpose vehicle by a participating development partners as the agency for joint co-ordination and execution of the partner’ support for integration of EAC.  On 19. 9.2013 Government of Kenya entered into a financial agreement under which Trademark East Africa was to provide financial assistance known as ‘Trademark East Africa grant’ of the project consisting of the upgrading of the customs equipment and process hence making Kenya Revenue Authority the beneficiary as its  government agency that customs enforcement in Kenya.  The financing agreement specifically appointed the appellant as the beneficiary. The contract in part stated Trademark East Africa’s role and responsibility included entering into all contracts with all approved suppliers and technicians during the pendency of the agreement with regard to the project.  Kenya Revenue Authority was to recognize and accept Trademark East Africa’s obligations in relation to procurement contraction, accounting and  auditing.  Pursuant to the financing agreement and Trademark East Africa’s procurement and Grants Manual, Trademark East Africa proceeded with a procurement process and notified Kenya Revenue Authority of its status.  Web Fontainne Group F2 LLC, the 1st respondent having been unsuccessful bidder appealed under Trademark East Africa. Appeals procedure under the bid documents and financial agreement and proceeded to file a second appeal under the Public Procurement and Disposal Act for review which was upheld.  The appellant put forward the following grounds in its memorandum of appeal:

1. The Board erred in finding that the 1st respondent, Kenya Revenue Authority, was the procuring entity when it was clear in law and fact that the procurement was undertaken by the 2nd respondent, Trademark East Africa, a private entity limited by guarantee and hence outside the ambit of the public procurement and disposal Act, 2005.

2. The Board erred in concluding  the 1st respondent was the procuring entity and the 2nd respondent was its agent when it was clear in law and in fact that the procurement was undertaken pursuant to a negotiated grant under terms and conditions agreed therein and hence fell outside the jurisdiction of the Board.

3. The Board failed to appreciate that under the terms and conditions of the negotiated grant the 2nd respondent was to undertake the procurement and that the 1st respondent ws only a beneficiary of the system to be procured.

4. The Board erred in  concluding that the 2nd respondent was an agent of the 1st respondent when it was a clear term of the negotiated grant that no liability would lie with the 1st respondent in respect of the procured system.

5. The board failed to appreciate that under the terms and conditions of the negotiated grant, no grant monies were going to be put in the control and disposal of the 1st respondent as it was a term of the grant that monies would be disbursed directly to the approved suppliers by the 2nd respondent.

6. The Board erred in concluding that  public monies would be utilized in the procurement process when no material pointing to that possibility was placed before it.

7. The Board failed to appreciate that the bidding was conducted suing the international Competitive Bidding (ICB) procedure specified in the World Bank’s Guidelines thus ousting the jurisdiction of the board by dint of the provisions of Section 6(1) and 7(1) of the public Procurement and Disposal Act, 2005.

4) Grounds 1, 2 and 4 relates to the question as to whether the procurement was undertaken by a private entity and whether Trademark East Africa was an agent of the appellant.

5) It is the submission of the appellant that PARB erred in finding that the appellant was the procuring entity yet it is clear that the procurement was undertaken by Trademark East Africa a private entity limited by guarantee hence it outside the ambit of the Public Procurement and Disposal Act, 2005.  The appellant further argued that from the provision of the Financing Agreement, it was clear that the procurement for any project to be funded by Trademark East Africa’s grants, the same was to be procured by Trademark East Africa and Kenya Revenue Authority would take the back the role of just being a beneficiary.  The appellant also argued that Public Procurement Administrative Review Board erred in dismissing the appellant’s preliminary objection and by inferring that the relationship between Kenya Revenue Authority and Trademark East Africa was that of agency.  The appellant urged this court to find that the provisions of the Public Procurement and Disposal Act did not apply to procurement of private entities like in this case.  It was pointed out that the 2nd respondent being a private entity was not covered under Public Procurement and Disposal Act since their Procurement Process and Guided Trademark East Africa Procurement and Grant Manual and World Bank Guidelines.

6) It is the submission  of Webb Fontaine Group FZ –LLC that the 1st respondent that the appeal lacks merit.  It is the 1st  respondent’s submission that the appellant was indeed the procuring entity in the subject procurement involving  public funds it is governed by the Public Procurement and Disposal Act.  The 1st respondent avers that the subject tender was conducted on behalf of the appellant by its agents Trademark East Africa and since Kenya Revenue Authority is a public body any procurement done on its behalf is a public procurement and hence amenable to the jurisdiction of the Public Procurement Administrative Review Board (PPARB).

7) Trademark East Africa, the 2nd respondent filed submissions in support of the appeal, it is argued that the Financing Agreement permitted the Trademark East Africa to procure suppliers in accordance with its procurement and Grants manual which are different from the procedure sunder the Public Procurement and Disposal Act, 2005.

8)  Bull SAs, the 2nd  interested party, was of the same argument like Trademark East Africa  that the procurement proceedings would be based on the Financing Agreement and the Grants Manual in addition to the World Bank Guidelines therefore provisions of PPDA, 2005 are not applicable to the said procurement.

9) Having considered the rival arguments, I have come to the following conclusion in the matter.  It is apparent from the pleadings and proceedings before the public Procurement Administration Review Board that the procurement proceedings were conducted on the basis of the negotiated grant.  In other words, the Financing Agreement of the negotiated Grant provided that the Integrated Customs  Management  Systems (ICMS) would be procured by Trademark East Africa  in accordance with its procurement and Grant’s Manual in addition to the World Bank Guidelines.  It is also clear from the provisions of Section 6(1) of  the Public Procurement and Disposal Act, 2005 (PPDA) that procurement proceedings conducted under negotiated treaties, grants and loans are restricted and the Public Procurement and Disposal Act 2005, was made subject to the obligations terms and conditions set out under such instruments.  In the instant appeal, the procurement was funded through negotiated grants and or loans, hence the provisions of Public Procurement and Disposal Act 2005 did not apply.  A critical examination of Trademark East Africa’s procurement Manual which formed part of the Bid Documents provided for a complaints procedure which an unsuccessful bidder would submit itself to.  The respondent herein having submitted itself to the aforesaid  procurement procedure it was bound by the terms thereof and was therefore stopped from invoking the jurisdiction of the Board  to determine the request for review it filed before the Board.  Grounds 5 and 6 can be dealt with together.  It is not in dispute that the funds utilized in the procurement of Integrated Customs  Management  system were sourced from the UK Government for International Development (DFID) in contribution to Trademark East Africa’s country programme activities under a negotiated grant and directly applied towards implementation of the Integrated Customs  Management  Systems project. It is clear to me that no public money were utilized in the procurement of Integrated Customs  Management  Systems.  In my humble view, the funds made available to Trademark East Africa for purposes of the Integrated Customs  Management  Systems procurement do not fit the definition of Public funds under Section 3 of Public Procurement and Disposal Act, 2005 since Trademark East Africa falls short of being defined as the procuring entity for purposes of Public Procurement under Public Procurement and Disposal Act, 2005 in the first place.

10) In the end, I find the appeal to be meritorious.  It is allowed with costs being awarded to the appellant.

Dated, Signed and Delivered in open court this 6th day of November, 2017.

J. K. SERGON

JUDGE

In the presence of:

.........................................  for the Appellant

......................................... for the Respondent